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Sunday, April 29, 2018

Paying for your pension by lowering wages

In Australia raising the superannuation guarantee from 9.5% to 12% will reduce workers’ wages and could actually hurt the retirement incomes of low-paid workers, the Grattan Institute has warned. “If our politicians really want to help low-income workers, and are serious about fixing the budget, they should abandon plans to raise the super guarantee,” the report concluded.The Grattan Institute chief executive John Daley and co-authors Brendan Coates and Trent Wiltshire explained “Higher compulsory super contributions are ultimately funded by lower wages.”

The Grattan authors argued that increasing the super guarantee may actually reduce retirement incomes for the bottom 40% of income earners because they will lose pension payments.

Since pensions are indexed to wage growth, lifting the super guarantee could make existing pensioners worse off by up to $460 a year for singles and $640 a year for couples by suppressing the value of their pension payments.

The Grattan authors argue high-income earners would be the big winners, because by saving more of their income they would be taxed at a flat 15% rate on extra contributions to their super fund, lower than their current rate of income tax.